Electronic Payments Part 2

In last week's eNews, we published Part I of our three-part series on Regulation E - reviewing basic liability issues. 

This week's installment provides specific steps and critical information for dealing with alleged errors including investigation timelines.  

Next week, the final part will address the impact of Visa and MasterCard zero liability policies and issues associated with branded cards.

This white paper has been added to IBAT's Featured Resources library, along with previous resources developed for the use of IBAT members.

CFPB Info Request

Last week, many Texas banks received ominous warnings of a Consumer Financial Protection Bureau (CFPB) information request faxed to banks across the country.  In response, the Independent Community Bankers of America (ICBA) contacted the CFPB for more information. Here are the facts, according to an email from ICBA President and CEO Cam Fine:

  • The CFPB's request for copies of bank checking account agreements was sent as part of its "market monitoring" mandate, which directs the bureau to monitor for risks to consumers in the offering of financial products and services.
  • The request was designed to aid the CFPB's market research into this product—it was not part of any examination effort. As a reminder, the CFPB does not have examination authority over community banks with less than $10 billion in assets.
  • The original request was sent in September by U.S. mail to 200 banks. The request specifically cited the CFPB's market-monitoring authority as the basis for the request. Several of the envelopes came back due to incorrect addresses. The CFPB obtained faxes for two of those banks (in Texas and Georgia) and recently faxed them the request with the October 11 deadline. No one else got a fax.
  • The CFPB did, in fact, inform the prudential regulators about the request.

Fine also confirmed that, in his own conversations with CFPB Director Richard Cordray, it was "clear that the bureau has no intention of examining community banks or even using its 'ride-along' authority to participate in a sampling of community bank exams conducted by prudential regulators."

Week in Review: October 11, 2013

Americans should have learned [last] week that the current version of governmental shutdown is not a binary condition. According to the Congressional Budget Office, eighty-three percent of the government's activities are still activated; yet we are being told without pause that the government has "shut down." Not a very can-do attitude! Even though the working-government-glass is well over half-full, the empty part is where a lot of the facts and figures were kept. But not all!

On Monday we learned that August's $13.625B increase in Consumer Credit was significantly more than the previous month's $10.4B or the survey consensus of $12B. Many expert analysts see this as a sign... Read more in the Baker Market Update.

Windows XP Support

The FFIEC agencies issued a joint statement alerting financial institutions that, as of April 8, 2014, Microsoft will not provide regular security patches, technical assistance or support for the Microsoft Windows XP operating system. Continued use of Windows XP after that date could present operational risks to financial institutions, third party service providers (TSPs), and activities supported by third parties. A variety of a bank's and its TSPs' devices could be exposed to increased operational risk, including personal computers, servers and ATMs. According to the statement, banks and their TSPs are expected to "identify, assess and manage these risks to ensure that safety, soundness and the ability to deliver products and services are not compromised." For more information, click here to read the joint statement.

The Texas Independent Banker

By Ken Olan

The potential for innovation through improved employee collaboration and engagement, in my estimation, is one of the single most important opportunities we have as an industry.  Yet from the conversations I’ve had with bankers across the globe, we seem to struggle to make it happen with any pace.  And pace is exactly what we need in a world where remaining relevant as an industry becomes more challenging by the day.

But are we making this critical change vector more difficult than it really is?  Perhaps we are.

In fact it’s always amazed me that some lower forms of life appear to display certain adaptive qualities that seem to rival or surpass those of human beings.  We see this in individual animals as well as in their group behavior.

Consider the common ant.  When I was a kid I remember peering inside one of those glass-paneled ant farms and watching the little critters execute spectacular feats of engineering.  Through an evolutionarily, continuous improvement process they created ever-sturdier tunnel systems, subterranean chambers and escape routes to the surface.  Even more amazing was that they apparently did their work as a cohesive group, acting in unison, to achieve their objective.

Honeys bees have similar characteristics.  They collectively build intricate honeycombs with tremendous structural strength.  I don’t know how many millions of years it took them to figure out that the hexagon matrix was the ideal form in which to build one, but that structural innovation has helped ensure the survival of the species for eons.

If you think about it, ants and bees in many ways represent the consummate workforce.  Each and every individual is involved in contributing at their full potential.

But how do these lowly creatures ensure their survival through continuous improvement without a leader dictating their activities every step of the way?  I mean, someone needs to be the boss, right?  Not really.

There is no “foreman ant” or “chief bee” that creates and directs all of the good ideas, if you will.  On the contrary, each individual is allowed to contribute in an organic way.  Individual contribution to improvement is systemic and is relied on, so to speak, by the group. 

Each individual insect is fully empowered to get the job done.  And if over the millennia, one individual finds a better way to do something, the others don’t argue about its practicality or merits.  Instead they take the improvement and run with it.

Insects have no egos, no job insecurities, and they aren’t interested in power plays.  They just drive and adopt improvements that benefit the collective group, regardless of where the “idea” comes from. 

Now consider chimpanzees.  Chimps enjoy eating insects, many of which nest in the trunks of trees.  At some point in time, a random chimpanzee discovered that he or she could insert a stick into the insect burrow in the tree and more easily extract the tasty morsels.  It was an innovative adaptation that increased productivity and contributed to the health of the collective chimp group (albeit not so much to the insects). 

When animals uncover these kinds of improvements, we call it adaptation.

Now, consider this: Innovation is a necessary form of adaptation for companies, because it specifically helps ensure our survival.  It enables us to remain relevant in the face of a changing world. 

Changing Dynamics

Who in most banks is responsible for innovation (if there is anyone, that is)?  Most likely it’s those in management positions.  That’s because there’s a hierarchy issue that implicitly says that the greater your title, the more worthy of consideration your ideas must be.

And while seniority certainly offers advantages that impact the direction of the organization, the top people aren’t always the most creative or the most in touch with what potential opportunities might be.

The good news is this dynamic is changing.

In the past it was traditionally thought that Power Equals Knowledge.  In other words, if you had a position of power you were assumed to have the necessary knowledge. 

Not so much any more.

In today’s world that notion has been flipped on its head.  Now it’s recognized that Knowledge Equals Power.  It’s the collective knowledge of all employees that contains the most brainpower to create innovation.  Position power can only support it.

I’ve discovered that some of the best ideas for innovation come from grass-roots employees who deeply understand the day-to-day workings of the organization and who truly recognize things that can be improved upon.

Unfortunately these same employees often remain quiet, because nobody asks for their ideas or because they think they won’t be listened to or taken seriously.  Ergo they remain silent and let the sub-optimal continue.  Their tacit knowledge and creativity continue to be underutilized until someone with influence actively engages them to be part of the conversation.

Times are changing indeed, and our industry must do more to tap into the entire knowledge base that comes to work every day.

We need to utilize all possible brainpower at our disposal in order to create continuous improvement; improvement that simply cannot come without a wider range of perspectives contributing.

If we as an industry want greater creativity and innovation, we simply must harness the collective intelligence we already have full access to within our work force.  We must engage all employees more and use their creativity and accumulated knowledge to contribute to the greater good.  Otherwise we are underutilizing some of the most potent natural resources in the enterprise.

Creating an Environment of Creativity

We wouldn’t go a day without turning the lights on in the office, so why would we block the very light of ideation waiting to be turned on in the company? 

So how can we unleash the creativity within the organization and tap into that power for innovation? 

1. Make a Top-Down Commitment

To unleash the creativity of an organization, we must decide to do it, and that decision must come from the highest levels.  We must make it clear that we want (even expect) all employees to contribute to the creative process, and encourage it. 

2. Build Structural Support

Once we’ve decided to actively encourage employees to contribute to improvement, we need a system of some sort to enable it so that it becomes part of the organizational DNA. 

Creating an informal, simplistic system like a suggestion box is one way to get started, or it can be a more advanced cloud-based system like the engagement and innovation platform we’ve developed at First Victoria.  In any case, great ideas will only surface if we create a structured mechanism to draw them out.

If we don’t back some sort of system to encourage ideation and collaboration, we risk not fully exploiting the knowledge of the full workforce to create improvement. 

3. Reward Creativity

As we actively encourage our employees to utilize their creative problem solving skills to find better ways of doing things we should also be clear that they will be rewarded for doing do. 

I’ve found that encouraging enthusiastic employee involvement in such a way that individuals feel engaged in and rewarded for succeeding (a.k.a., gamification) really gets the creative juices flowing and supercharges the desired intellectual contributions. 

4. Encourage Better Questions

If we want better ideas from our workforce we must teach employees how to think more creatively; how to use their knowledge to uncover what is possible.  As an industry we don’t do a very good job of that, because we are driven by rules, regulations and hierarchy which can stifle creativity.

Instead I suggest we enable our employees to be more creative by helping them ask better questions – by insisting they ask them.  Better questions lead to better answers, and every answer is preceded by a question.

Why is asking better questions so important? 

The human mind has a natural tendency to want to answer whatever is asked of it.  It simply has to.  Want proof?  What color are your shoes?

I’ll bet you either asked your brain to think about it or you looked at your shoes to find the answer.  When asked a question, we can’t help ourselves but want to seek an answer, and that human trait offers unlimited potential for innovation. 

At First Victoria we shortened our account opening time because I asked our operations people one simple question; “How can we reduce our account opening time by ten minutes?”  That question drove a project that took on a life of its own, and the result was exactly what I’d asked for.

So ask your people, at all levels, better questions, and you’ll get better answers.  Ask them for their help in innovating, and you’ll engage them by sending the message that what they think is important.  The effect will be more engaged employees who will work their hearts out to find answers for you.  Then reward them in some way when they do, and you’ll get more of the same.

Your company can innovate to whatever degree you support the process.  You just need to set up a system to engage the creativity of your employees, with the elements I just mentioned, and you’ll be well on your way to generating new forms of value your customers will appreciate and your employees will buy into – because they helped create them!

Ken Olan is Senior Executive Vice President of Retail Banking and CMO at First Victoria Bank and is a leading thinker in the subjects of innovation, engagement and leveraging collective intelligence.  His new book, Questioning Innovation, is scheduled for release in early 2014.  If you’d like to learn more, you may contact Ken at kolan@firstvictoria.com.

Electronic Payments Part 1

Based upon the interest in our recent one-page check liability series, we have opted to run a three-part series on electronic payments and the associated liability for authorized transactions.  

The first part in the series appears today and reviews basic liability under Regulation E.  Part II will deal with investigation timelines and what you need to know.  The final part will address the impact of Visa and MasterCard zero liability policies and issues associated with branded cards.

21st Century Community Banking

Last week, the Federal Reserve Bank of St. Louis hosted the "Community Banking in the 21st Century" conference. A co-production of the Federal Reserve System and the Conference of State Bank Supervisors (CSBS), the conference included community bankers, academics, policymakers and bank supervisors from across the country in a first-of-its-kind research conference to focus on the challenges and opportunities facing the 21st century community bank.

The full text of white papers presented at the conference are available online.  IBAT members might be particularly interested in:

The conference was attended by Commissioner Charles Cooper of the Texas Department of Banking, IBAT Vice Chair Rogers Pope, Jr. (Texas Bank and Trust) and past Chairman J. David Williams (Centennial Bank).

Week in Review: October 4, 2013

Well, here we are on the first Friday of the month with not a single person being reported as unemployed. Amazing! Not only that, but no one, anywhere, has heard anything about anybody leaving the labor force. Incredible! Not all is sweetness and light, though; there’s been no news of any jobs being created, either. Truth to tell, there's been no news of anything coming out of the Bureau of Labor Statistics (BLS) since they started their weekend a few days early. Online visitors to the BLS may be directed to the Grand Canyon's website. Those guys.

Before the federal fall break began, though, we learned from the Institute of Supply Management (ISM) on Tuesday that their manufacturing index rose to 56.2 from the prior month's 55.7. Markets were pleasantly surprised that the number came in significantly higher than the expected value of 55... Read more in the Baker Market Update.

Directors' Education

IBAT is pleased to offer two upcoming educational opportunities for community bank directors:

Certified Community Bank Director Conference - Join more than 100 community bank directors who have already registered for this program, October 31 - November 2, 2013 at the Cox School of Business on the campus of Southern Methodist University.  The program includes a comprehensive curriculum, created to address all areas of bank directorship - from duties and responsibilities to the fundamentals of bank finance.

FDIC Banker Outreach - Join leaders from the FDIC and Texas Department of Banking in Austin (November 20) or Richardson (November 22).  The event includes breakout sessions tailored for bank directors, as well as general sessions exploring the regulatory/compliance issues of greatest interest to Texas community banks.

Bank Operations Institute

We are only a few short days away from embarking on the 33rd Annual IBAT Bank Operations Institute, scheduled to take place October 13-18.  We do have some space left to accept a few more and don't want your key operations staff to miss out.  Why?  In the recent Examination Survey from Sageworks, 2013 Findings: Sageworks Bank & Credit Union Examination Survey, bankers were asked the question:  What advice would you share with other institutions about management?

"FDIC-examined institutions that said management was an area discussed in their exams urged cross-training, succession planning and other contingency planning.  They also recommended hiring quality staff and making sure the team isn't made up of people who have the same type of personality."

"Institutions examined  by other regulatory bodies recommended that management should keep an open dialogue with regulators and the directors must be kept informed and involved."

The BOI advisory board is comprised of all representatives from each of the regulatory agencies.  Most of the sessions at BOI are taught by the regulatory staff that oversees the examination process.  What better way to encourage and illustrate to your operations staff you are invested in their future of community banking, and want to establish the relationships now that will assist them throughout their careers?

We encourage you to make the investment in your staff and your bank's relationship with regulators by sending an attendee to Bank Operations Institute.